"Equity Value Enhancement"
Author & AM&AA's 2015 Thought-Leader of the Year,
Dr. Carl Sheeler Shares Proven Tips for Reducing Risks While Increasing Business Values
LOS ANGELES, Jan. 25, 2016 -- Dr. Carl Sheeler, Managing Director at Berkeley Research Group and author of "Equity Value Enhancement," proposes the new year presents new opportunities for owners and executives to increase the value of their businesses. To that end, he outlines the following tips and strategies for optimizing value, whether as part of executing on a growth strategy or with the objective of transitioning out of the business.
Risk vs. Reward
By their very nature, privately held businesses are often more risky than a portfolio of publicly held company stock. Owners would therefore be wise to dedicate substantial effort to identifying and mitigating risks. This is much more than simply increasing profits and sales. Dr. Sheeler suggests adopting the perspective of a dispassionate outside investor when assessing the risk factors influencing business value. Using trusted advisors unique perspectives helps.
Planning for Success
'Failing to plan is planning to fail' – it's a cliché because it's true. Consider running a business as a high-stakes game of chess. Think several moves ahead, anticipating every foreseeable event and have a contingency in place. Disruptions and opportunities are a given. Prepare for their impact. Investors appreciate this due diligence level and the business will enjoy a higher value.
A business' value depends just as much upon external as internal factors. No business operates in a vacuum. So comparison against itself is inadequate. Economic climate, industry trends and the competitive landscape within a company's niche will all have an impact. These factors are largely out of an owner's control, but an understanding of broader market and industry realities will be an important component of both the long-term business plan and day-to-day tactics.
Track the Data
A smart investor says, "Show me the data." Establishing metrics is a must. This means keeping all financial accounts current and transparent. Sales growth, profit margins, working capital, debt ratios and inventory turns are a few of the key metrics that need to be accounted for on a regular basis. Ensure a 'budget versus actual' exists as proof the owner knows the business and what influences performance. However, while harder to identify, 'intangible assets' like goodwill is what creates most value for a company. These variables must be measured as well.
Great businesses are nearly always great places to work, with engaged and passionate employees innovating together to achieve amazing things. Employees should be fairly compensated, as well as having ample opportunity for learning and advancement. When the environment is right, turnover is low.
The business derives measurable advantages from its human capital and the "glamor" factor of its brand attracts quality job applicants. This culture should extend beyond the company's four walls to the way it encourages relationships and knowledge from others.
On the flip side, a business cannot be overly dependent on one or a few people for success – not even the owner(s) should be truly indispensable. Training and professional development programs should be geared toward creating a flexible, scalable team where each member can wear more than one hat, if necessary. Business buyers should never fear that losing the founder or key staff might erode the company's future value.
In the business context, diversification means having multiple revenue streams from a host of profitable services and/or products. A single offering or client concentration usually lowers the value of a business. "If you're one lost client or customer away from insolvency," says Sheeler, "then your business needs to focus on diversifying today as part of increasing value tomorrow."
Partner, shareholder, vendor and client disputes, workers' comp claims and regulatory non-compliance can quickly hound a business straight into bankruptcy. At the very least, ongoing litigation can harm a company's reputation. Avoiding litigation begins with establishing an ethical foundation and building a company where doing the right things is a given.
"Equity Value Enhancement" (EVE), published by John Wiley & Sons, is available on Amazon.
Carl Sheeler, PhD, ASA brings wisdom gained from his 25 years of strategic planning, governance, business
operations, finance and advanced analytics experiences to bring clarity to complex risk identification, measurement, management, and mitigation issues faced by family offices and businesses. He is the author of the John Wiley & Sons book titled Equity Valuation Enhancement, a treatise which addresses scaling 8- to 10-figure companies and has presented or published 200+ times for entities such as the American Institute of Certified Public Accountants, the American Bar Association, the Federal Bar Association and other organizations on value, strategy and governance. He can be reached at firstname.lastname@example.org or 424-253-0110